Mariano Browne
A government’s budget statement is important. It identifies political priorities and outlines plans to action those priorities by allocating state resources accordingly. These expenditure plans also serve as a tool of economic management, influencing economic actors (the business sector and households) to adjust plans in ways that would encourage growth and development. Outlining how the Government would source revenue (taxes) and prioritise spending facilitates public accountability and oversight. The budget speech and subsequent debate enable the public to understand the policy nuances that cannot be addressed in a speech.
There was added importance to this year’s budget speech, as it provided an opportunity for a restatement, if not a redefinition, of the key problems and how the new administration would address them. This would enable the public to understand the priorities and the urgency underlying the timelines, tempered by realism. Investor confidence, domestic and foreign, is built on sound fiscal management and an understanding of the Government’s key initiatives.
Natural gas production has been declining since 2014. Energy prices fell quickly thereafter, remaining low except for a short-lived spike in 2022. Attempting to provide a proverbial soft landing, the last administration avoided sharp adjustments. The deficits were large, financed by increasing the national debt. The foreign exchange reserves declined. It failed to correct the deep structural imbalances that were omnipresent during its ten years in office. These imbalances remain and will become more acute without urgent corrective action.
To illustrate the gravity of the situation, within three months of taking office in April, the net government debt had increased from $140.8 billion (80.5 per cent of GDP) to $147.5 billion (84.4 per cent of GDP) at the end of July 2025. Conversely, during the same period, Net Official Reserves declined from USD $5.27 billion to $4.8 billion at the end of July 2025. The five-year term of office will pass quickly, and the statistics will not improve unless remedial action is taken quickly.
The budget debate in the Lower House was short, starting on Friday and concluding early on Saturday morning. Thankfully, the Standing Committee of Finance meeting provided another opportunity for a more detailed examination of the figures before the Senate budget debate.
During the committee meeting, Minister Dave Tancoo admitted that neither the ten per cent salary increase for public servants announced during the budget speech nor the increased employer contributions to the NIS fund were included in the estimates.
He explained that he had employed the principle of conservatism, meaning that he excluded any budgetary provision for these expense items because he was uncertain that the negotiations would be completed in this financial year. His interpretation was completely at odds with the principle he invoked to explain this omission, an omission that grossly understated government expenditure and the deficit. He was not the only minister in this position.
Anyone vaguely familiar with accounting principles would be aware that the conservatism principle emphasises being cautious and prudent when preparing financial statements or budgets. Preparing a budget means incorporating the “most likely” scenario. Further, when faced with uncertainty, one should choose the method that results in lower income or, conversely, higher expenditure. One anticipates and includes all probable losses and expenses and only records gains when they are realised. This helps to avoid surprises.
In the budget speech, Minister Tancoo noted that the impact of union agreements in the 2025 fiscal deficit amounted to $3.1 billion and that implementing the agreement with four public sector unions would cost $214 million annually and arrears of $730 million “as of December 2025”. This sums to $4 billion and accounts only for the five per cent offers. In keeping with convention, one can expect that all public sector wage “settlements” would be increased to the ten per cent offered to the PSA to maintain parity.
Excluding monies due to the largest public sector union (the PSA), the deficit is understated by a minimum of $4 billion and should be at least $7.8 billion, not the $3.8 billion in the budget speech. Including projected payments to the PSA will balloon the deficit. Any pretence of having “magically” solved the Government’s budgetary issues disappears.
While Minister Tancoo is not an accountant, the public should expect that the numbers presented would be built on realistic assumptions for the very transparency and fiscal accountability he espoused. This is especially true since the speech emphasised the need for institutional strengthening along with accountability and renewal. Since he did not categorise the exclusion of the financial impact of the ten per cent offer to public servants from the budget as an oversight or an error, we must conclude that he did so knowingly. In which case, he was neither prudent nor cautious behind the fig leaf of “conservatism”.
The public understands that the country faces difficult options and wants to be reassured that the political directorate will do its best in the circumstances.
Stating that VAT would be removed from items that were never vatable could be excused as political hyperbole. Deliberately understating the public sector payroll numbers, thereby understating the deficit, amounts to “window dressing” at best and, at worst, “cooking the books”. This approach misleads and could be interpreted as reckless and undermines the credibility of the budget, the minister, and the administration.
Mariano Browne is the Chief Executive Officer of the UWI Arthur Lok Jack Global School of Business.
